The high tech strategy for fighting insurance fraud

The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.

Sai Prasanth C, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur


One of the biggest challenges that the insurance sector faces is that of fake claims. According to industry experts, the insurance industry is annually hit by fake claims to the tune of 20-22%. The latest amendment in Section 45 of the Insurance laws Amendment Ordinance means that no life insurer can repudiate a claim from a policy holder three years after the issuance. This means that a policy can’t be canceled on the grounds of miss-statement of facts—even fraudulent claims are protected.

Sunder Krishnan, Chief Risk Officer, Reliance Life Insurance, decided to take up the issue of ‘fake claims’ head-on. With many years of experience in handling claims in the insurance industry, he was in a position to understand the general strategy adopted by the filers of false claims.

Usually the insurers begin their investigation after the claim has been filed, but by then the fake claimant is prepared to prove himself innocent. A surprise check is important as it leads to the fraudster being taken by surprise. It should be noted that filing of fake claims is in essence a team effort—the doctor, pathological labs, lawyer, hospital all work in tandem to perpetrate the fraud. At times, surveyors, investigators and agents too get involved in the shady deals.


However, the possibility of Krishnan’s pro-active strategy of going after the fraudsters, having an impact on the honest customer could not be ignored. The drive could lead to the cancellation of the account of a genuine policy holder. To ensure that such mistakes did not happen, Krishnan used cutting edge IT to evaluate the customers. The company is now using SAS data analytics to develop information about the locations from where frequent bad claims are generally generated.

The maximum number of fake claims is being filed by organized syndicates operating out of selected pockets in the country. The first priority is to identify the locations from where they are operating, and this must be followed by the verification of their details like occupation, age, product, etc. Krishnan says, “SAS data analytics helps us mine the data and it throws up the list of the most likely negative locations, from where customers who plan to file fake claims in future are operating.”

The risk teams across the country constantly engage with the underwriting team. The underwriting department is responsible for checks and verification of the details in the customer forms filled by the agent. They escalate forms with suspicious details back to the central retail team. The suspicious cases are colored in red, amber, green, based on the risk matrix, which is linked to the parameters of location, age, occupation, product

Having successfully deployed PIRV to detect insurance fraud, Krishnan now wants to take the system to the next level. He is in favor of the Insurance industry putting up a collective fight. “I have organised joint meetings on fraud prevention. We have brought this to the regulator’s notice to look into this area. We have also done a lot of spade work for putting in common systems for the Industry so that the system gives lag and lead indicators,” says Krishnan.

The lag indicator is based on past data. For instance, the data on disproportionate claims from certain locations, which is higher than the LIC table. Lead indicator is predictive in nature, based on analytics systems, which predict the persistence issue about who is more likely not to pay the claims next year.



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